Higher education likes to think of itself as unique. In many ways, it is. But the financial pressures facing colleges and universities are not entirely new. Other industries have already dealt with shrinking markets. Their experiences offer some useful lessons for higher education.
The latest CBO survey confirms what many leaders are seeing: 46 percent of institutions cite enrollment decline as their top financial risk. Combine that with tuition pricing pressure as institutions compete for students, and you’re looking at a market contraction problem that could build into a crisis.
Healthcare systems, hospitality chains, media companies, and travel operators have all faced versions of this challenge: a shrinking market, customers with more choices, and cost structures designed for growth. How organizations responded made a significant difference.
Case Study 1: Healthcare Consolidation
Twenty years ago, regional hospital systems were fragmented, with organizations sometimes competing directly in the same markets. Rising costs and shrinking reimbursements created pressure. Some organizations responded to this pressure by consolidating. Larger systems merged with smaller ones as they eliminated duplicate functions and reassessed their service lines.
In other words, when the market shrinks, the underlying cost structure has to shrink with it. You can’t solve a revenue problem with expense management alone. You need structural change.
Some healthcare systems approached consolidation strategically, identifying which services generated margin, which were community obligations, and which were legacy inefficiency. They consolidated back-office functions, closed duplicate facilities, and merged with strategic partners.
Others fought the change and eventually closed entirely.
Higher education is roughly a decade behind healthcare in this cycle. Right now, we’re seeing the same early signs – the hiring freezes, shared services models between neighboring institutions, and deliberate program closures. These changes can be difficult, but they also reflect the rationalization that market contraction requires.
Institutions cannot indefinitely maintain a cost structure built around one level of enrollment and substantially different revenue.
Case Study 2: Hospitality Delivery Models
The hotel industry faced a different version of the problem. For decades, the model was capital-intensive, relying on owning or leasing physical space, maintaining a staff, and providing a uniform product. Airbnb and changes in corporate travel patterns post-pandemic challenged those assumptions.
The winners in this situation were the brands that recognized two things: first, that customers still needed a place to stay that was convenient and affordable. Second, that the cost structure of owning and staffing physical locations was becoming a liability, not an asset.
Hotel companies responded in different ways. Some went asset-light, partnering with property owners rather than owning every property themselves. Some segmented their offerings by use case, providing boutique properties for leisure, select-service for business. Some exited markets entirely where the economics no longer worked.
The ones that tried to maintain a single, high-cost model in a market that no longer valued it didn’t disappear, but they shrank. Significantly.
Higher education faces a similar question: Are you delivering on what students actually value, or are you maintaining a cost structure because it’s what you’ve always done?
Many institutions maintain robust residential facilities, extensive student services, and traditional four-year programs even as a growing segment of students want flexible, affordable, skills-based credentials. The residential model will continue to make sense for some institutions and some students, but if you’re trying to compete on price while maintaining a $20,000-per-student annual facilities cost, you’re working against market gravity.
Case Study 3: Media Reinvention
The media industry offers another useful comparison. When streaming disrupted traditional television, existing media companies had to decide whether to continue supporting their existing model or build something new.
Some tried to do both simultaneously. They maintained broadcast operations, invested in streaming, and attempted to preserve their existing cost structures. The math didn’t work. You can’t run a high-cost, legacy operation and a lean, digital-first operation at the same time and expect to compete on cost or speed.
The ones that thrived made hard choices. They shed old costs, rebuilt around streaming, and accepted that the new model meant lower margins initially but viability in the long term. That required layoffs, facility closures, and significant changes to the product itself.
Ultimately, you can’t optimize your way to viability if the model itself is uncompetitive. Cutting 10 percent from overhead does little to address the larger problem if you’re a four-year residential model priced at $60,000 per year and trying to compete with an online provider offering a career-focused two-year credential for $15,000 total.
The Enrollment Cliff Is Not a Surprise
The demographic trends affecting higher education have been public for years. The college-age population is declining. Families are increasingly price-sensitive and outcome-focused. Employers want skills over credentials. And tuition increases are outpacing wage growth, making the traditional ROI calculation harder for students and families every year.
The current enrollment decline is not unexpected. What is changing is the extent to which institutions need to respond to it financially.
Where does AI Fit Into the Financial Future of Higher Education?
AI adds another dimension to the delivery model question. It isn’t going to disrupt higher education overnight, but it’s already creating opportunities to change how institutions deliver certain services. Early adopters have started experimenting with using AI for personalized tutoring, automating routine advising conversations, and finding ways to extend faculty expertise to more students.
But using technology does not automatically reduce costs. If AI allows an institution to serve more students with its existing advising staff, that may improve productivity and margins. If the institution simply adds AI tools while maintaining the same staffing and processes, that’s just an additional expense.
Instead of only asking how AI can help institutions perform existing tasks more efficiently, leaders should consider which parts of the student experience could be redesigned using approaches made possible by new technology.
The Strategic Question: Build vs. Shrink
Every institution in this market faces a choice between making deliberate changes to its delivery model or allowing market conditions to dictate those changes over time.
Deliberate transformation means:
- Identifying which programs and services generate margin and which are institutional subsidy
- Building new, lower-cost delivery models for market segments you’re currently underserving
- Partnering or outsourcing functions that aren’t core to your value proposition
- Being willing to exit markets or close programs that don’t fit the new model
- Investing in outcomes measurement and employer alignment
A reactive approach means:
- Waiting for enrollment declines to force decisions
- Making across-the-board cuts when revenue drops
- Closing programs under financial duress rather than as part of a broader strategy
- Allowing repeated rounds of cuts to erode institutional momentum and confidence
Hiring freezes and program closures look alarming from the outside, but those organizations are often choosing deliberate transformation instead of waiting for conditions to worsen.
What This Means for Your Strategy
If your institution’s financial plan assumes stable enrollment at current pricing indefinitely, it needs to be revisited.
At a minimum, leaders should have:
- A clear assessment of your value proposition. What outcomes do you deliver? What do you cost? How does that compare to alternatives in your market?
- Multiple scenarios tied to realistic market conditions. What happens if enrollment remains stable? What happens if it declines by 10 percent? And what if pricing pressure reduces net tuition revenue by five to 10 percent? What changes in each scenario?
- Specific responses for each scenario. Which academic programs would you consolidate or close? Where could you move to blended or online formats? What facilities could you rationalize? What partnerships could reduce costs or expand capabilities?
- A clear decision framework. When metrics would trigger each change? At what point would leadership move from monitoring a problem to acting on it?
We’ve written before about aligning price, outcomes, and financial strategy. That framework becomes particularly important when markets are under pressure. An institution can’t compete on price alone if its outcomes don’t justify the cost. It can’t compete on outcomes if it’s priced out of reach. And neither strategy works indefinitely if the cost structure is out of step with the market.
The institutions that are thriving in other industries learned this lesson years ago. Higher education is just getting there.
The 10-Year Horizon
Look at the CBO survey data one more time. Only 70 percent of CBOs feel confident about their institution’s financial future over ten years. That uncertainty is understandable. The question for institutional leaders is what they do with it.
Consider: What does your institution look like in 2036? What market are you serving? What delivery model are you using? What’s your cost structure? How many students do you enroll? At what price? And critically: What do you need to change now to make a stable financial future possible?
The ones that wait until 2030 to answer those questions will be managing decline without the opportunity for deliberate transformation. The ones answering them now, even if it means making hard choices today, are better positioning themselves for sustainable viability.
FuturED Finance helps institutions move beyond reaction to strategy—building the multi-year scenarios, financial models, and leadership alignment required to navigate market transitions deliberately rather than reluctantly. Let’s talk about what your institution’s next decade looks like.